FHA Sells Off Mortgages, Giving Lifeline to Some

FHA Sells Off Mortgages, Giving Lifeline to Some

Daily Real Estate News |
Wednesday, December 12, 2012

Distressed home owners may be getting a second chance to avoid foreclosure. The U.S. Department of Housing and Urban Development is selling thousands of seriously delinquent mortgages insured by the Federal Housing Administration in a new program called Distressed Asset Stabilization.

For its first sale, HUD plans to sell 9,400 loans. HUD says it plans to sell at least 30,000 more within the next year.

The mortgages are being offered at big discounts to private investors and nonprofit organizations. The buyers of the mortgages are expected to in turn modify many of the loans, which could help save many from foreclosure.

However, critics of the program say it will help save only a fraction of home owners from foreclosure and still misses helping many distressed home owners with FHA-insured loans.

Under the program, HUD plans to sell 40,000 loans by the end of next year, but there are 700,000 seriously delinquent mortgages that the FHA owns.

HUD will sell the loans in two types of loan pools called “Neighborhood Stabilization Outcome” pools and “national” pools, AOL Real Estate reports.

In “Neighborhood Stabilization Outcome” pools, the mortgages will be from regions that have been badly hit with elevated levels of foreclosures. Investors who purchase within that pool cannot repossess more than 50 percent of those homes. “If they do, they must spend money to help revitalize those communities,” AOL Real Estate reports.

Investors who purchase in “national” pools don’t have any constraints on how many homes they can repossess. “That raises the possibility that borrowers in national pools will be less likely to receive mortgage relief from the private investors who buy their loans -- because such investors do not have a mandate to save a certain portion from foreclosure,” AOL Real Estate reports. Investors who purchase in national pools must wait at least six months before resuming the foreclosure process.